UK economy faces long grind, no new recession - thinktank

LONDON

A man looks at clothes on a Sale rail inside a shop during the Christmas sales in London December 27, 2012.

Reuters/Luke MacGregor

LONDON The British economy is set for slower growth in 2013 and next year than thought only three months ago but it will probably skirt a triple-dip recession, a leading economic think-tank said on Tuesday.

The economy will grow by 0.7 percent in 2013 as it grinds through the slowest recovery from recession in the past 100 years, the National Institute of Economic and Social Research (NIESR) estimated in a quarterly report.

That was lower than its previous forecast, made in November, for growth of 1.1 percent this year.

Simon Kirby, principal research fellow at NIESR, said the weak growth at the end of 2012 and the poor prospects for the euro zone, Britain's main export market, in 2013 were mostly to blame for the lower forecasts.

NIESR's forecasts were also weaker than those used by Britain's Conservative-led government. It expects the economy to expand by 1.2 percent this year and by 2 percent in 2014.

The British economy suffered an unexpected contraction in the last quarter of 2012 but it would probably eke out some growth in early 2013, avoiding a so-called triple-dip recession, Kirby said.

"The risk is not whether we have a very tiny contraction in Q1 to hit that technical definition (of recession) but whether we have stagnation throughout 2013," he told reporters.

As well as underscoring the need for a rethink by the government of its focus on curbing the budget deficit, the weak outlook argued for a fresh approach to monetary policy by the Bank of England under its next governor Mark Carney, Kirby said.

In his current job running the Bank of Canada, Carney oversaw the introduction of more explicit signals about how long it would keep interest rates low, something he has hinted he may do once he takes over at the Bank of England from July 1.

Kirby said such new policies were worth a shot, even if the euro zone was the biggest drag on growth.

"Just because you are concerned that they might not have that much impact is not a reason not to try," he said.

Looking further ahead, British unemployment was likely to start to fall in a sustained way only in 2015 and gross domestic product in per capita terms would not return to its pre-crisis peak until 2018, NIESR said.